Section 80ccf

For claiming deductions under Section 80CCF, the taxpayer should comply with certain basic conditions. Let us take a look at these prerequisites

• For claiming a deduction under Section 80CCF, the assessee or the taxpayer should be a resident of India. Non-Resident Indians or foreign nationals cannot avail of this deduction.
• The assessee should be an individual or a person. Companies, firms and organisations cannot avail of this deduction.
• Apart from the individual being an assessee, the Hindu United Family(HUF) are entitled to claim a deduction under this section.
• The investment for these infrastructure bonds can be made by one or more persons but the benefit of deduction under Section 80CCF can be availed only by one assessee that is the primary stakeholder.
• The banks or the government issues bonds which qualify as investments and a deduction is granted for investment in these bonds.
• The maximum deduction allowed under Section 80CCF is Rs. 20,000 and any investment over and above this amount will be taxable in the hands of the assessee.
• The investment should be made by major individuals. No investment is to make in the name of any minor.

Documents Required to Claim a Deduction under Section 80CCF

• A valid government accepted identity card is required for an individual to claim a deduction under Section 80CCF
• The bank details of the individual need to be furnished for claiming a deduction
• PAN details of individuals are required to be furnished for claiming a deduction under Section 80CCF

Which Bonds are Eligible for Deduction under Section 80CCF?

The Income Tax Act of 1961 does not state any particular bonds which can be claimed as a deduction under Section 80CCF. All infrastructure bonds issued by The Life Insurance Corporation, Industrial Financial Corporation of India, Integrated infrastructure Finance Company and other approved NBFs are eligible for deduction. Other factors to be considered while selecting the bonds are-

• The tenure of the bonds should be ten years with a lock-in period of five years
• The bonds may be in physical or demat form
• The interest income that is earned from the bonds must be added to the taxable income of the individual.

Example of Deduction under Section 80GG

Mrs. Sandhya, a finance professional has a salary of Rs. 4.9 lakhs per annum. As per the Income Tax Act,1961 he needs to pay a tax on his income exceeding Rs. 2.5 lakhs that is Rs. 2.4 lakhs. His taxable income is Rs. 2.4 lakhs. His taxable income is eligible for deduction under Section 80C. The deduction available under Section 80C is Rs. 1.5 lakhs. The income of Mrs Sandhya is Rs. 90,000. To reduce his tax liability, he invests in infrastructure bonds offered by a top bank. The amount invested is Rs. 30,000. Out of the amount invested, Mrs Sandhya will get a deduction of Rs. 20,000. The tax liability of Mrs Sandhya is now Rs. 70,000 as she will get a deduction of Rs. 20,000. The tax liability is reduced by a considerable amount.

Taxation of Infrastructure Bonds and TDS

The infrastructure bonds issued in the financial year 2011-1012 are maturing in the financial year 2021-22. The bonds provided a tax benefit at the time of investment but the interest is taxable for the taxpayer. The two options provided to investors for these bonds were-

Annual interest payout option

Cumulative interest option

In the annual payout option, the tax has already been paid by the investors on the interest amount received. On the other hand, the investors who opted for the cumulative interest option end up paying more tax than saved in the year of investment.

The interest on long term infrastructure bonds is taxable. The interest earned annually for the annual option selected and for the aggregate receipt on maturity for the cumulative option is added to the taxable income of the investors.

Residents payers, who have opted for the cumulative option in physical format will be subject to tax deducted at the source. The rate is ten per cent for payment redemption exceeding Rs. 5,000.

No TDS is applicable for investors holding bonds in demat form.

For non-resident taxpayers, TDS at the rate of 31.2% is applicable on the interest payouts.

For availing of an exemption on TDS, the taxpayers can submit form 15H/15G. The taxpayers if they have not provided PAN at the time of investment, need to update PAN within the stipulated time for the respective bonds as specified by the issuers of bonds.

Non-resident bondholders need to submit a tax officers order under section 197/195 specifying NIL/lower TDS rate within the stipulated date to ensure that the TDS rates as per the specified order are applied.

Key Points to Remember

• The infrastructure tax saving bonds are generally tax saving bonds with a tenure of ten years and a minimum lock-in period of five years
• The investment can be made in multiple bonds but the deduction amount is limited to only Rs.20,000 per annum.
• In the case of multiple investors, the primary investor will avail of the deduction and in the case of Hindu Undivided Family (HUF), only one investor can avail of the deduction.
• The interest earned on the bonds is taxable in the hands of the investor and will be included in the taxable income of the investor.

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